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<TITLE> Dynamic Inter...
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<h1> Dynamic Interactions in Financial Markets </h1>
<strong>
authors: Wilbert McClay & Orlee Shohamy<br>
Brandeis University<br>
Department of Computer Science<br>
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Early observers of financial markets believed in the efficient market
hypothesis. This hypothesis claims that financial markets will reach
an efficient state where prices of stocks will reflect a rational
forecast of the present value of future dividend payments. The forces
of competition and rational arbitrage would guarantee that  prices
adjust to their intrinic values. Today, this theory is considered to
be highly unrealistic. If financial markets were to become efficient,
investors would have to know the exact change in a company's stock
value caused by unanticipated future events. <p>
The acceptance of real-life factors, such as imperfect information on
behalf of investors, have produced a new school of thought in market
theory. Today, the idea of fashion and fads in investor attitudes (or
other types of systematic "irrationality") affecting stock prices has
gained new respectability. This thinking led to the development of a
field named Behavioral Finance. Statistical data and research on stock
market history have shown that financial markets have several
irrational trends. For example, the New York Stock Exchange Market has
a significantly highere average returns on Fridays than it does on
Mondays. Such a phenomenon cannot be explained under the assumption of
rational behavior. <p>
Utilizing the Maspar (MP2) computer system, we will design a technical
schematic for the interacting agents (investors) and their impact on
forty companies in the New York Stock Exchange. We will consider
several realistic factors such as imperfect information to form a
model regarding investor's decision-making process. Using these
decisions models, we will then simulate adjustments in stock prices,
using non-linear regressional analysis. In doing so, we will find a
pattern to define the fluctuations in stock prices.. <p>
Everday, millions of agents buy and sell stock on the market. These
investor interventions are constantly molding the ever-changing prices
of stocks. We set to examine aspects of this non- rational behavior
in an  investors decision making process. We will then focus on the
effect their decisions have on the dynamics of the New York Stock
Exchange Market.<p>

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<!WA0><A HREF="http://www.cs.brandeis.edu/~agents">BACK TO THE INTERACTION LAB</a>
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